ING closes popular Diversified Yield Fund
ING has shut its $500 million Diversified Yield Fund (DYF) to new investors, under pressure from the Australian Tax Office.
Tuesday, January 24th 2006, 3:49AM
by Rob Hosking
ING argued against that ruling and it still says the ruling runs against the declared intent of the current legislation in Australia.
However just before Christmas the ATO indicated that it is standing by its ruling – and that, just to make sure, it is referring the issue to the Australian Treasury for a possible “legislative solution” – ie: If the ATO isn’t right in its interpretation of the law now, the law will be changed.
More immediately, the ATO’s stance means the DYF is up for 48.5% tax unless all income from the fund - apart from unrealised gains on debt securities and accrued foreign exchange gains - is distributed before 30 June.
In a letter to advisers, ING says the earlier ruling included “only interest earned on the cash assets held by the fund; the recent ATO decision now captures most investment income.”
As the decision stands, ING has to distribute to investors “sufficient amounts to ensure the trustee is not taxed.”
That is what the company is now doing, on a quarterly, as opposed to the previous annual basis. The distribution is in the form of bonus units that are then taxed at the investors’ marginal tax rate.
As a result, ING is making a special payment on March 14; the fund will be closed to new investors but will reopen for a limited six-week period from the following week.
In a message to investors ING’s general manager of retail distribution Wayne Becker says the fund has been “a huge success” and is delivering results better than its target of 2% above the 90-day bill rate.
“The DYF is currently yielding a one-year return of around 9.5% (net of fees) and has experienced positive returns every month since launch.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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